On the last day of last year, the St. Louis Fed banked published a fascinating and somewhat bizarre report, titled “A System Dynamics Approach to Understanding the Use of Banks and Alternative Financial Services in St. Louis.”  Drawing on their apparently famed complex systems capabilities, the report breaks down into smaller pieces how and why people use, disabuse, part from, return to, oscillate, vacillate, two-step and sashay between various bank and AFS products.  The graphic to the right is a good example.  Check it out.  It’s interesting. Kind of.

Ultimately, my key take away was the simple distinction related to volition.  Particularly, notion of the involuntarily unbanked verses the voluntarily unbanked.  We don’t make that distinction enough: we assume that “unbanked” or “underbanked” is an undesirable state.  I’m pretty clear that a bank is not the panacea for consumer finance, at least at a B2C level.  The Fed indirectly acknowledges that.

If we accept that, we need to elevate from the garbage the “alternative financial services” sector, provide basic consumer protections without turning it into retail banking, encourage banks to become more active in consumer finance as a B2B player and provide the involuntarily unbanked – not all the unbanked – with a path into the banking channel, or better alternative products.